For many people, their 401(k) plan represents their most significant retirement savings vehicle. Thus, to make sure you have sufficient funds for retirement, you need to get your 401(k) plan on track. To do so, consider these tips:
- Increase your contribution rate. Strive for total contributions from you and your employer of approximately 10% to 15% of your salary. If you’re not able to save that much right away, save what you can now and increase your contribution rate every six months until you reach that level. One way to accomplish that is to put all pay increases immediately into your 401(k) plan. At a minimum, make sure you’re contributing enough to take advantage of all employer-matching contributions.
- Rebalance your investments. You can’t select your investments once and then just ignore your plan. Review your allocation annually to make sure it is close to your original allocation. If not, adjust your holdings to get your allocation back in line. Selling investments within your 401(k) plan does not generate tax liabilities, so you can make these changes without tax ramifications. Use this annual review to make sure you are still satisfied with your investment choices and your allocation is still appropriate for your situation. Avoid common mistakes made when investing 401(k) assets, such as allocating too much to conservative investments, not diversifying among several investments, and investing too much in your employer’s stock.
- Don’t raid your 401(k) balance. Your 401(k) plan should only be used for your retirement. Don’t even think about borrowing from the plan for any other purpose. Sure, that money might come in handy to use as a down payment on a home or pay off some debts. But you don’t want to get in the habit of using those funds for anything other than retirement. Similarly, if you change jobs, don’t withdraw money from your 401(k) plan. Keep the money with your old employer or roll it over to your new 401(k) plan or an individual retirement account.
- Seek guidance. It is important to manage your 401(k) plan carefully to help maximize your future retirement income. If you’re concerned about the long-term future of your 401(k) plan, please call for a review.